Buying a family member's home? A gift of equity can lower what you need at closing.
When a parent, grandparent, or relative sells you their home below market value, that difference in price can often be structured as a "gift of equity"- credited toward your down payment instead of changing hands as cash.
- Reduces cash needed at closing
- Common for family sales and inheritances-in-progress
- Needs to be documented and structured correctly
Talk Through Your Options
No obligation - a local loan officer will walk you through what fits your situation.
You're all set.
A member of the Coltrain team will reach out shortly.
No cost, no obligation. A member of our team will follow up directly.
What a gift of equity actually is
A gift of equity is the difference between a home's appraised market value and the (lower) price a family member sells it to you for. Instead of that difference disappearing, it's documented as a credit that can count toward your down payment - meaning you may need to bring little or no cash of your own to closing.
Lowers Cash Needed
The gifted equity can often cover part or all of your down payment, reducing what you personally need to bring to the table.
Keeps It in the Family
A common way for parents or grandparents to help the next generation buy a home without writing a separate check.
Needs to Be Documented
Lenders require a gift of equity letter and an appraisal - it has to be structured correctly to count toward your loan.
The moving pieces
Get the home appraised
Lenders need to know the true market value to calculate how much equity is actually being gifted.
Sign a gift of equity letter
The seller documents the amount being gifted and confirms it doesn't need to be repaid - standard requirement across nearly all loan programs.
Apply for financing
Your loan officer structures the loan around the sale price minus the gifted equity, which can affect your required down payment and loan amount.
Buying from family and not sure how to structure it?
Gift of equity FAQs
Who can give a gift of equity?+
Most loan programs require the gift to come from a close family member - typically a parent, grandparent, sibling, or similarly close relative. Requirements vary by loan type.
Does a gift of equity replace a home inspection or appraisal?+
No. An appraisal is still required to establish the home's fair market value, which is what the gift amount is calculated against. An inspection is still worth doing for your own peace of mind.
Can a gift of equity cover the entire down payment?+
In many cases, yes, depending on the loan program and how much equity is being gifted relative to the purchase price. Some programs still require a minimum contribution from the buyer's own funds.
Are there tax implications for the seller?+
Possibly - gift of equity transactions can have gift tax reporting implications for the seller depending on the amount. This is worth a conversation with a tax professional alongside your loan officer.
Related guides
Buying from family? Let's structure it right.
A quick conversation up front avoids surprises at closing.